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Policymakers Should Craft Reinsurance Proposals to Lower Premiums, Help More People

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The idea of reimbursing health insurers for some costs associated with their highest-cost enrollees, known as reinsurance, is gaining traction as policymakers seek ways to make states’ individual insurance markets more stable and reduce premiums. But some federal reinsurance proposals are likelier than others to reduce premiums, and reinsurance alone won’t help individual market consumers who qualify for subsidized coverage.

Reinsurance defrays insurers’ costs and reduces their risk, so insurers can reduce overall premiums compared to what they’d otherwise charge.

In the House, a bipartisan reinsurance bill from Reps. Ryan Costello and Collin Peterson is reportedly gaining support, including among insurers. It would provide up to $30 billion over three years for the Secretary of Health and Human Services (HHS) to allocate at his discretion. Meanwhile, Sen. Susan Collins is continuing to craft her bipartisan reinsurance bill (co-sponsored by Sen. Bill Nelson), which Senate Majority Leader Mitch McConnell promised to bring to the Senate floor. She’s proposing to make up to $10 billion over two years available to states, which they could then use to secure additional federal funding through waivers that HHS approves to let states experiment with new ways to deliver health care to their residents.

With reinsurance efforts potentially moving forward, policymakers should keep the following in mind:

Reinsurance funds should be targeted at reducing premiums, not diluted by other purposes. The Costello bill would let states use federal reinsurance for a number of purposes, not all of which focus on the individual market or on reducing premiums. For example, states could use the funding for “promoting participation” and “increasing health insurance options” in both the individual and small-group markets, or for promoting access to preventive services (especially dental and vision care) and maternity and newborn care, and preventing and treating mental or substance use disorders. While increasing access to these health services is important, it isn’t directly related to reducing premiums or stabilizing insurance markets. These provisions would probably also let states use federal funds to replace their own spending on activities they would have undertaken anyway — which would have no impact on individual-market premiums at all.

The Costello bill also seems to let states create high-risk pools, an idea that House Speaker Paul Ryan has continued to talk up. But past high-risk pools worked by separating people with high-cost health needs into a different pool from less costly people. That approach has been tried and failed, and it shouldn’t be replicated. The Costello bill also includes new, unrelated policy dealing with abortion.

A federal reinsurance program is likely the fastest, most efficient way to mitigate premium increases in 2019. Insurers will have to finalize their decisions about individual-market premiums and about where they will offer plans by this fall, and they’ll begin making decisions well before that. And 2019 is shaping up to be a tough year in the individual market, particularly because the new tax law’s repeal of the Affordable Care Act’s (ACA) individual mandate to have health coverage or pay a penalty will take effect and because plans that don’t meet ACA standards are expected to proliferate under proposed Trump Administration regulatory changes. While a temporary reinsurance program is only a partial fix at best for the premium increases and other harmful effects of these changes, a federal reinsurance program could be implemented more quickly and efficiently than multiple state-level programs.

The Collins-Nelson bill relies entirely on states to apply for funding. In a better approach, the Costello bill gives states the option to apply for funding and administer their own programs but includes a safeguard — to establish a federal program if states don’t act fast enough. The Costello bill, however, would also leave the amount that each state would receive up to the HHS Secretary’s discretion, creating unnecessary uncertainty and risk, particularly because the Trump Administration has been more focused on sabotaging the ACA-compliant insurance markets than shoring them up.

Provisions intended to offset reinsurance costs shouldn’t make people worse off. If policymakers seek to offset the federal cost of a reinsurance program through spending cuts or tax increases, those measures should not threaten the health of individuals. They should not, for instance, include cuts in other health care programs or changes that hurt modest-income people or those with pre-existing conditions.

Even well-designed reinsurance doesn’t make health care more affordable for low- or moderate-income people. Reinsurance reduces the sticker price of health insurance — i. e., the overall premiums that insurers charge. That means it benefits individuals and families who don’t qualify for premium tax credits that help low- and moderate-income people afford their insurance through the ACA health insurance marketplaces. That’s because the premium credits limit eligible people’s cost to no more than a given percentage of their incomes, so they pay about the same amount for coverage regardless of the sticker price. Most Americans who are uninsured and eligible for marketplace coverage could qualify for tax credits under current law. But some people who get tax credit — those with incomes up to four times the poverty level, or about $48,000 a year for an individual — also have trouble affording their premiums and out-of-pocket costs. Researchers estimate that modest improvements in the tax credits could meaningfully expand coverage. Increasing the tax credits or cost-sharing reductions (CSRs) for those already receiving them would also help shore up insurance markets and, if paired with reinsurance, broaden the benefits to all individuals and families buying health insurance on their own.

A bill that includes reinsurance funding and would reinstate CSR payments to insurers, such as the Costello bill, also should increase the tax credits or increase cost-sharing subsidies for people. Here’s why: As we and others have explained, the Trump Administration’s decision to halt CSR payments has had the effect of substantially raising tax credits, making coverage more affordable for many moderate-income consumers. (That’s because insurers raised premiums to account for the loss of CSR payments, which boosted the amount of federal premium tax credits available to eligible people.) Restoring CSR payments would reverse the tax credit increases and make coverage more expensive for this group. Thus, a bill funding reinsurance, restoring CSRs, and failing to increase tax credits or cost-sharing subsidies would make coverage more affordable for middle-income consumers but less affordable for many people at lower income levels.